The China boom’s reshaping of the Australian economy is breaking history as it buckles heartland companies such as Holden, Toyota and Qantas. The strong dollar and more intense global competition are exposing the high cost of traditional Australian industries such as car making, airlines, food processing and aluminium smelting.

These same companies and industries are also the strongholds of Australia’s blue-collar trade union movement. That’s no coincidence. They are high cost in large part because of generous and restrictive union workplace bargains struck under an industrial relations system that institutionalises the late 19th-century assumption of an innate conflict between capital and labour.

The big blue-collar trade unions – such as the Australian Manufacturing Workers Union and the Transport Workers Union – control and finance the Australian Labor Party. As
Julia Gillard
said when prime minister, the ALP is a party of organised labour.

Prime Minister
Tony Abbott
is now refusing to underwrite the inefficiencies of the unreconstructed blue-collar labour monopolies. He even mocks the corporate leaders who put their hands out to government to make up the protection money they paid out in cosy union deals.

In the process, Abbott is exposing Labor’s deep structural flaws and the anachronism of Bill Shorten’s leadership. And he’s finding a way to assault the nexus of the trade unions, the industrial relations club and political labour without, so far, reviving the political curse of John Howard’s Work Choices.

Last week surely marked a historical break as Abbott dismissed Qantas chief
Alan Joyce
’s plea for a government debt guarantee, shrugged off Joyce’s 5000 jobs cuts and pushed for Australia’s national carrier to be exposed to a potential foreign takeover. Even more remarkably, Abbott and the Liberals won the argument on the floor of Parliament, among elite opinion and seemingly among the masses.

Guerilla campaign

While slapping Joyce’s hand, Epstein exposed the hollowness of Shorten’s objections to lifting the cap on foreign investment in Qantas: in office, Labor had seriously flirted with moving in the same direction.

Critically, Epstein is a corporate Labor man who has seen first-hand how the unions can damage a big Australian company – such as the guerilla campaign that goaded Joyce into grounding the airline in 2011 – but then demand the government do something when the company starts losing money.

The reverberations from Epstein’s intervention highlight how quickly the debate is moving now Abbott has exploited – rather than resisted – the break in history from the reshaping of the Australian economy into more a supplier of minerals, energy, foods, niche manufacturing and a broad range of services to Asia.

This has been driven by the China- and Asia-fuelled demand for Australian iron ore, coal and gas, which has sent export prices soaring, sparked the biggest resources development wave in our history and, now, has ignited a huge surge in Australian iron ore and liquefied natural gas export volumes. This has lifted the dollar from its 1980s and ’90s range of US60¢-80¢ to its China boom range of US85¢ to $US1.05.

The dollar has been further supported by the US Federal Reserve and the Bank of Japan programs intended to drive their currencies down by printing more greenbacks and yen. Both the Reserve Bank of Australia and the International Monetary Fund reckon the Australian dollar is overvalued on the fundamentals. Even accounting for its modest fall against the US dollar over the past year, the Aussie dollar’s trade-weighted purchasing power is 45 per cent or so higher than before the China boom kicked in more than a decade ago.

In the past year, the dollar’s persistent strength and sharply rising power prices have snapped the resolve of key parts of Australian manufacturing. Most prominently, the big three car makers announced they would shut up shop after being propped up by more than $30 billion of consumer and taxpayer subsidies since 1997.

The political fallout has been remarkably modest, even after Treasurer
Joe Hockey
demanded that GM come clean on whether they were staying or going. Shorten’s protests that the Coalition is destroying Aussie jobs is not resonating. The Liberals are set to win government in South Australia this weekend despite Labor premier
Jay Weatherill
’s attempts to blame Holden’s demise on Abbott and Hockey.

The fallout has been so restrained because Australians simply don’t care as much as they once did. The economic liberalisations of the 1980s and ’90s and the smartphone revolution of the 2000s have generated more of a consumer society than one dominated by producer interests.

Richer as a result

Under the Fraser government’s import quotas in the late 1970s, Australians were literally forced to buy Australian-made cars. Imports were only allowed 20 per cent of the market. Once given a choice, Australians simply stopped buying Holdens and Fords. Today, barely one in 10 new car buyers choose a locally made vehicle.

This trend has been supercharged by the China boom price signals which are reshaping the economy and, in turn, exposing Australia’s century-old labour market institutions and the structure of the Labor Party itself.

The resources-poor Asian economies are prepared to pay much more for Australia’s iron ore, coal and gas which, unlike our manufacturing sector, operate on a global scale and generally at the low end of the global cost curve.

So we charge Asia more for our raw materials. Asia turns these raw materials into cars at one-quarter of the cost of doing this in Australia. And that is now shuttering an Australian industry that accounted for a mere 0.25 per cent of world vehicle production despite being subsidised by $1 billion a year. Overall, we’re richer as a result.

Similarly, while Qantas is fighting to keep its two-thirds share of the local market, fewer than one in six international flights in and out of Australia are Qantas planes. Such is the globalisation and increased competition of international aviation.

This reduced brand loyalty translates into less political influence, explaining why the debates over subsidising the car industry or giving Qantas a debt guarantee shifted so quickly once Abbott put them to the test. Until Abbott’s edict, The Australian, which self-identifies as sharing the pro-market right of the news market with The Australian Financial Review, backed Qantas’s bid for some sort of government loan guarantee. After Abbott turned Joyce down, the new leftie The Saturday Paper strongly supported the Prime Minister’s refusal to do just that.

That’s also evidence of how the ‘‘progressive’’ green-left is breaking from the industrial wing of the Labor Party. It was the industrial wing which installed Shorten as party leader following its 2013 election loss, in defiance of the grassroots membership’s preference for the Left’s
Anthony Albanese
. (The polls suggest Labor might not only lose Saturdays’ Tasmanian state election, it might also surrender official opposition status to the Greens).

After all, as both Abbott and some on the left now figure, why is it the taxpayers’ problem if Qantas wants to defend its two-thirds share of the domestic market while operating a unionised cost base 20 per cent higher than rival Virgin?

The flight to individual choice over cars, airline flights and so on is mirrored in the decline in labour collectivism and the rise of self-employed contractors. From more than half the workforce in the old days, less than one in seven private sector employees now belong to trade unions.

And the unions and the century-old industrial relations system that sustains them have failed to adapt to the break in Australia’s economic history. There has been nothing like the Labor-ACTU accord, which cut real wages in response to the early 1980s job recession, to relieve the strong-dollar pressure on manufacturing. And, under Rudd-Gillard Labor, the system was dialled back to focus on “fairness’’, rather than productivity, work incentives or the shared interests of employers and employees. Fairness was code for shoring up the trade unions’ legal bargaining position and reinforcing Australia’s award system more uniformly across the nation’s workplaces.

But repaying the union powerbrokers that control Labor has also made the economy less malleable and hence more shatter-prone as it is shocked by the high dollar. Gillard’s award “modernisation’’ actually lifted weekend penalty rates for parts of the hospitality and restaurant industry. In a world of i-choice, Labor’s Fair Work Act retreated to collectivism by making it illegal for businesses to strike statutory contracts with individual employees.

Class-warfare rage

Most telling was the AMWU’s final act before Toyota announced in February that it was closing its Australian car-making ­operations: a successful court action to prevent the company from talking directly to its workers about the changes that might help save their own jobs. This was the union’s definition of defending workers’ rights.

So buying a Holden or a Ford, or flying Qantas internationally, or belonging to a union is no longer the Australian norm even if the brands still grab the newspaper (and website) headlines. Most of the hundreds of thousands of Australians retrenched from their jobs each year are not eligible for the generous redundancy payments and retraining packages that will go to the retrenched car workers.

Instead, Australians work and think outside the mindset of the traditional unionised economy and the class-warfare rage maintained by the Maritime Union of Australia or the law-breaking Construction, Forestry, Mining and Energy Union. They are part of the aspirational class that Paul Keating says Labor created through its reforms of the ’80s but which it has since forgotten.

Yet the dinosaur manufacturing, transport, construction and maritime unions are all part of the financial and power food chain that feeds the Labor Party and its fiefdoms.

Labor had revealed itself to be structurally unfit to govern, the AFR declared on day one of the 2013 election campaign. First, the factional warlords had treated an elected prime minister as subservient to their own interests by dismissing Rudd.

And third, the instances of union corruption, from the Australian Workers Union scandal that embroiled Gillard in the 1990s to the Health Services Union disgrace that has since delivered guilty findings against former Labor federal president
Michael Williamson
and former Labor federal MP
Craig Thomson
, had exposed the insidious incestuousness of the labour movement’s political and industrial wings.

Also since then, Fairfax Media’s expose of CFMEU-related bikie and criminal activity on big construction sites, such as Sydney’s Barangaroo, has demolished Shorten’s case against Abbott’s resurrection of the Australian Building and Construction Commission and legitimised his calling of a royal commission into union corruption.

Some in the labour movement are prepared to warn of the danger zone it now inhabits. AWU national secretary
Paul Howes
, a former Shorten protege and one of the faceless men who dismissed Rudd in 2010, last month agreed that Australia’s industrial relations system was dragging down the economy’s competitiveness and costing manufacturing jobs. Howes all but accused the movement of being soft on corruption within its ranks and warned that Gillard’s Fair Work Act was an ‘‘inherently unstable" riposte to Work Choices. And he conceded that leapfrogging wage claims on Australia’s offshore gas rigs threatened to price Australia out of the next wave of LNG development. For his sins, Howes has effectively been sent to Coventry.

So, while putting a competitive straitjacket on manufacturing, workplace regulation is also threatening Australia’s new export success story. Former Labor resources minister and ACTU president
Martin Ferguson
this month spoke straight from the Abbott playbook. “Australia’s future economic strength will not be underpinned by the propping up of unsustainable sectors or by any government subsidy or handouts,’’ said Ferguson, now an adviser to the gas industry. ‘‘Strength will come through policy and reform that makes it easier for businesses to invest with certainty."

Political lessons

Then came the bombshells. Ferguson accused the Maritime Union of Australia, which covers the tender vessels that supply the northern ports and offshore LNG platforms from Fremantle, of sabotaging Australia’s next wave of LNG development. “The way in which that particular union leverages its bargaining position threatens the economic prospects of its members, and the state [WA] as a whole," he said. And Ferguson urged Abbott to go further in winding back Labor’s Fair Work Act, describing the Prime Minister’s proposals to date as timid.

Yet, Abbott’s “timid’’ initial assault on Australia’s anachronistic industrial relations culture reflects the political lessons of Work Choices. He’s not frightening hard-working Australians by threatening their basic wages and conditions. Instead, he is refusing to shield the firms and industries that harbour his industrial and political adversaries from the break in Australia’s economic history. And he is exposing the rottenness of Labor’s subservience to the union factional warlords.

The question is whether Abbott will follow through. Holden and Qantas simply highlight how just about every established company and business in the land is finding its basic business model undermined by some combination of the strong dollar, digital disruption, intensifying global competition and the new consumer sovereignty of the iPhone economy. Australia’s workplace framework and culture – born when the telephone was in its infancy – is simply too regulated and inflexible to grasp the opportunities of this post-industrial world. Yet this is the structure on which Labor depends.